Published 4:00 am, Saturday, August 11, 2001

California's unemployment rate fell in July in what economists said was a statistical aberration that masked underlying weakness in the labor market.

The official unemployment rate unexpectedly dropped to 4.9 percent from 5.1 percent in June, the state Employment Development Department reported yesterday. But the number only highlighted what many experts say are deep- seated inaccuracies in jobless data released by the states.

State unemployment numbers "can often be a misleading indication of what's going on," said Neil Bhutta, an economist with the Pennsylvania consulting firm Economy.com.

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The nation's jobless rate held steady at 4.5 percent in July, the Labor Department reported last week.

Even as state unemployment officially declined, other data showed the job market was worsening last month. The total number of jobs in California's economy shrank by 117,400, according to one measure. In addition, the number of people collecting unemployment benefits jumped.

On its face, the official unemployment number is surprising, given widespread layoffs and the continued downward spiral of the state's economy. Experts said the drop was due to peculiarities in the way employment is calculated and doesn't signal a recovery in business conditions.

Last month's unemployment drop partly reflected a seasonal evening-out of the data. Government officials always trim the jobless number in July because, without such an adjustment, the large number of people getting out of school and looking for work would make the month's unemployment number appear deceptively high.

On an unadjusted basis, California's jobless rate actually ticked up to 5.3 percent in July from 5.2 percent the month before.

Unadjusted data show that unemployment rose throughout most of the Bay Area.

Jobless totals were up most sharply in Santa Clara County, hit hard by the crash of the technology sector.

The San Jose area's 4.7 percent July jobless rate rocketed up from 2.2 percent during the same month the year before. The combined rate for San Francisco, San Mateo and Marin counties was 3.9 percent in July, unchanged from June.

Another, highly unusual development also pushed down the state's official unemployment figure, economists said.

The number of people counted as part of the labor force almost always rises from June to July. But last month, the labor force shrank by 31,000. That suggests that thousands of people who had lost jobs left the workforce and were not officially counted as unemployed.

"A labor force decline, when usually it is historically positive, is a very telling sign," said Bhutta. "People are adjusting their behavior to weak market conditions. Students are not seeking summer work and others previously looking for work may have given up their search."

Official state data showed unemployment just a bit above its recent low of 4.5 percent and a notch below the 5 percent level of July 2000.

At the same time, the total number of jobs was virtually unchanged during July from the month before, according to two types of seasonally adjusted data compiled by the state. Without the adjustment though, the actual California nonfarm job count dropped by 117,400.

While the number of jobs increased in construction, retail trade and financial services, totals fell in government, services, wholesale trade and manufacturing, the state reported.

On an adjusted basis, the number of unemployed fell by 43,000 to 851,000. Taking away the adjustment, the number of unemployed rose 34,000. The number of people collecting unemployment insurance benefits meanwhile jumped by almost 40,000 to 445,334.

Questions about employment data are not just a California issue. Economists have been expressing growing skepticism about unemployment statistics released by states across the country. The main criticism is that federal data used by the states represent too small a sample to give accurate employment readings for individual states.

Employment Development Department Director Michael Bernick said the health of the state's job market can't be judged by the unemployment rate alone. "The rate needs to be combined with several other indicators, including information from the payroll survey and unemployment claims," Bernick said.

Job specialists outside government meanwhile said the labor conditions are deteriorating.

San Francisco's Jewish Vocational Services, which serves a nondenominational clientele in the Bay Area, has seen a 24 percent increase in the number of people using its resume posting service during the past two months. It is increasing the number of two-hour job-skill workshops it offers from two to four per month, with plans to boost the number to eight per month.

"The sheer number of clients we're seeing tells us that unemployment is more than what the data are showing," said John Halpin, an official of the group.